




Variance is a measure of volatility. Variance is calculated as the average squared deviation from the mean. The Capital Asset Pricing Model uses variance as a measure of investment risk. Investments with higher volatility (variance) have greater risk. CAPM postulates that the risk (variance) of an investment portfolio consists of both market risk and specific risks associated with each asset. While market risk is unavoidable, portfolio variance can be minimized and the risk associated with specific assets reduced if the investor owns a diversified mix of assets. Most financial advisors seek to minimize portfolio variance for their clients by recommending that they invest in a diversified portfolio which includes both large and small market capitalization domestic stocks, as well as bonds, international equities and real estate.
Rate this variance definition...




Where is the market headed? The answer may surprise you. Find out with the exclusive & Barron's recommended charts of Chart of the Day. 

Popular Terms: current ratio, phantom income, liquidity ratio, balance sheet, 401a, per diem, Zero Cost Collar, annual return, stock split, exdividend date, deferred revenue, covered put, LIBOR, option premium, debt service coverage, 1031 exchange, cancelled check, command economy, class C shares, diluted share, FTSE, margin rate, APR, reverse mortgage, dividends payable, average price per share, required rate of return, risk management, 1035 exchange, in escrow, FICO score, deferred tax, 144a, whollyowned subsidiary, VIX, open position, inflation, exdividend, stock market close, quality assurance, minority interest, irrevocable trust, Key Rate Duration, EBITDA, labor relations, implied volatility, retained earnings, limit order, real GDP


 